Correlation Between ProShares UltraShort and Direxion Daily

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Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort and Direxion Daily at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining ProShares UltraShort and Direxion Daily into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ProShares UltraShort Utilities and Direxion Daily MSCI, you can compare the effects of market volatilities on ProShares UltraShort and Direxion Daily and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in ProShares UltraShort with a short position of Direxion Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and Direxion Daily.

Diversification Opportunities for ProShares UltraShort and Direxion Daily

0.45
  Correlation Coefficient

Very weak diversification

The 3 months correlation between ProShares and Direxion is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Utilities and Direxion Daily MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion Daily MSCI and ProShares UltraShort is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on ProShares UltraShort Utilities are associated (or correlated) with Direxion Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion Daily MSCI has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Direxion Daily go up and down completely randomly.

Pair Corralation between ProShares UltraShort and Direxion Daily

Considering the 90-day investment horizon ProShares UltraShort Utilities is expected to under-perform the Direxion Daily. But the etf apears to be less risky and, when comparing its historical volatility, ProShares UltraShort Utilities is 1.23 times less risky than Direxion Daily. The etf trades about -0.11 of its potential returns per unit of risk. The Direxion Daily MSCI is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,362  in Direxion Daily MSCI on December 29, 2023 and sell it today you would lose (321.50) from holding Direxion Daily MSCI or give up 23.6% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy99.19%
ValuesDaily Returns

ProShares UltraShort Utilities  vs.  Direxion Daily MSCI

 Performance 
       Timeline  
ProShares UltraShort 

Risk-Adjusted Performance

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Low
 
High
Very Weak
Over the last 90 days ProShares UltraShort Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, ProShares UltraShort is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.
Direxion Daily MSCI 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Direxion Daily MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Direxion Daily is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ProShares UltraShort and Direxion Daily Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ProShares UltraShort and Direxion Daily

The main advantage of trading using opposite ProShares UltraShort and Direxion Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort position performs unexpectedly, Direxion Daily can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Direxion Daily will offset losses from the drop in Direxion Daily's long position.
The idea behind ProShares UltraShort Utilities and Direxion Daily MSCI pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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